Hi guys! I was comparing exercise 3 vs 5 in Example 11 (page 221 - Reading 35), they seems very similar then I tride calculate the non-systematic risk for Exercise 5, with the formula described in Solution 3 (i.e. not using the R2)
I can’t put the formulas here but I’m considering: (i) 14% for the portfolio standard deviation (ii) 0,90 for Beta (iii) 16% for the market standard deviation
(14% x 14%) - (0,9 x 0,9) x (16% x 16%) = 0,00114 vs 0,007056 of the solution 5
I’m I wrong in something?
I second ste79’s question.
I understand that (1-R2) is the unexplained part or the unsystematic risk.
But what is wrong with the beta approach and most importantly, why two approaches lead to different risks?
That’s the point! Apparently the two questions are identical then the two approaches should lead to the same results. I’ve sent an email to CFAI
Hi Ste79 … i was about to write the same question …
i tried it like you, using the formula in question 3 and of course i reached the same answer as u.
have u found any clarification for this?
Hi Gary! Apparently they were wrong and should be reported in the errata.
I don’t see it in the errata.
Any wise comment on the topic?